CBP determines country of origin for Ethernet devices

CBP is slated to publish Tuesday a ruling that found the U.S. to be the country of origin of certain Ethernet devices for purposes of U.S. government procurement.

CBP determines country of origin for Ethernet devices

CBP is slated to publish Tuesday a ruling that found the U.S. to be the country of origin of certain Ethernet devices for purposes of U.S. government procurement.

CBP determines country of origin for Ethernet devices

CBP is slated to publish Tuesday a ruling that found the U.S. to be the country of origin of certain Ethernet devices for purposes of U.S. government procurement.

By Brian Bradley | Feb 4, 2019

U.S. Customs and Border Protection has determined that the U.S. is the country of origin for certain Ethernet switches, routers and memory cards for purposes of U.S. government procurement, CBP announced. In the final determination (HQ H290670), CBP concluded that the programming and downloading operations performed in the U.S., using U.S.-origin software, substantially transform the country of origin of the Ethernet switches, routers and network cards. Baker & McKenzie attorney Stuart Seidel requested a final determination on behalf of ALE USA Inc., in a Sept. 20, 2017, letter to Customs. ALE manufactures and imports a group of Ethernet switches, routers and network cards, including the OmniSwitch® OS6900-X72, OS6900-Q32, OS6900-C32, OS6900-CX72, OS6860/6860E family, OS 6560 family, OS 6450 family and OS 6865-U28X, according to CBP. The ruling request noted that the hardware for these products was designed in Taiwan and manufactured in China, but that the final programming of a memory capability and operating system associated with the devices are completed and compiled in the U.S. and will be downloaded in the U.S., CBP said.

The request also noted that the metal fabrication of the devices takes places in Taiwan and involves simple punching, bending and painting of sheet steel or aluminum metals to create the protective case, which takes about 20 minutes to complete. Remaining hardware assembly takes place in China, involving components including resistors, capacitors, diodes, transistors, memory, application-specific integrated circuits, memory modules, CPUs, printed circuit cards and metal housings with countries of origin in various parts of Asia, including Singapore, Taiwan and China, CBP noted the request as stating. ALE contended that the programming undertaken in China is to verify correct manufacturing of the product and that the hardware at this point is missing the majority of programming, leaving it incapable of performing the necessary functions of Ethernet router functionality; therefore, the product enters the U.S. in a nonfunctional state. The U.S. assembly process involves reprogramming of memory capabilities with valid, proper information originating solely from ALE’s proprietary product Data Management tool, the operating system is loaded onto an electronic storage medium, final tests are conducted, the product is packaged and quality control mechanisms are conducted, validating and allowing for release the products to be shipped, the letter states. In its ruling, CBP pointed to the 1982 case of Data General v. U.S., in which the Court of International Trade (CIT) determined that the programming of a foreign programmable read-only memory (PROM) chip in the U.S. substantially transformed the PROM into a U.S. article.

“In the United States, the programming bestowed upon each integrated circuit its electronic function, that is, its ‘memory’ which could be retrieved,” CBP stated. “A distinct physical change was effected in the PROM by the opening or closing of the fuses, depending on the method of programming. The essence of the article, its interconnections or stored memory, was established by programming.” CBP also pointed to previous rulings, including HQ 735027, dated September 7, 1993, which found that programming blank media (Electrically Erasable Programmable Read-Only Memory) with instructions that allow it to perform certain functions that prevent piracy of software constitutes a substantial transformation. In ALE’s case, “it is only after the installation of U.S.-origin software that the devices obtain their essence and functionality as switches and routers,” CBP’s ruling states. “Without the U.S. proprietary software, the devices cannot function as a network device in any capacity.” The development, configuration and downloading of the devices’ operating system helps transform the essence of the products at issue from merchant silicon into fully functional network devices capable of performing intended switching and routing functions, CBP said. “We find that the country of origin of the final product is the United States, where the nonfunctional devices are substantially transformed as a result of downloading performed in the United States, with software developed in the United States,” CBP said. “Furthermore, in the present case, the essence of the articles depends on the information technology found in the software, which allows the devices to communicate with other network switches or routers for their ultimate purpose.

The agency continued, “For country of origin determinations, it should be noted that the final determination differs based on each article’s specific purpose, makeup, and applicable technology.” Any party of interest may, within 30 days of publication of the ruling in the Federal Register (set for Tuesday), seek judicial review of the final determination at CIT.

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